What Does the Options Market Know About INTC Earnings?

Intel Corporation (NASDAQ: INTC) found itself down over 2% late in the session Today. The movement stood out as the S&P 500 and the Nasdaq 100 were mostly unchanged. While INTC has underperformed on the year, it has been consolidating over the past coupe months. However, today’s move and option activity suggest that something may not be well as the stock approaches it’s earnings next week on October 21 after the market close.  

All of the hype and uncertainty around chip production makes the upcoming earnings a real wildcard.

INTC Option Activity

One of the hallmarks of unusual option activity is high option volume. Typically, that volume will be one-sided. That means that either the calls or puts will have more volume. Looking at INTC, you’ll see that the puts traded 110,000 contracts to 69,000 for the calls. That put volume was nearly three times the 5-day average.

While volume is part of the picture, the volume doesn’t tell you if the activity is opening or closing. It also doesn’t tell you if the puts were bought or sold, or both. This is where looking at the fill price and the open interest helps identify the type of activity you’re viewing. For INTC, the volume pretty evenly split between the bid and ask at 36% and 46%, respectively.

Here’s a breakdown of the significant option activity on INTC:

• 20,000 22 OCT 21 $51 puts mostly BOT in 1 print @ $0.88 to $0.95
• 20,000 22 OCT 21 $47 puts sold mostly in 1 print @ $0.14 to $0.15

With 20,000 contracts and 13,500 filling in one print, you pretty much know right away that it’s big. When you consider the open interest of less than 500 contracts, you know this is opening activity. The fact that the $51 puts mostly filled at the ask and the $47 mostly filled at the bid, you know this is a long put vertical trade.

Considering the short amount of time to expiration and the trade maximizes it’s return if the stock is below $47, INTC has a lot of work to do. However, the fact that earnings are just around the corner gives this stock a big catalyst.

Conclusion

It’s not all the time that you see such a large directional trade before an earnings announcement like we’re seeing in INTC. It also doesn’t mean that someone knows something. However, when you see a significant amount of notional value being put down anticipating a big move, it pays to take notice. Using this information doesn’t mean that you need to mirror the trade, but it does give an often times valuable hint as to the direction and potential magnitude of the move.

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